Reviews are in: Geithner clears the bar

Treasury Secretary Timothy Geithner – who hasn’t had many winning days in his short tenure on Pennsylvania Avenue – scored a big political victory Monday, as Wall Street traders breathed new life into his career with a stock market rally of nearly 500 points

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The morning began with Geithner briefing reporters on his new bank bailout proposal, which would use $75 billion to $100 billion in taxpayer dollars, plus money from private investors, to generate $500 billion to buy so-called toxic assets from troubled banks. That amount could increase to $1 trillion over time.

For the day at least, the debate in Washington shifted from whether Geithner should keep his job to an argument over the merits of his proposal. “They have a second chance right now and it’s good that they’re seizing it,” said one Wall Street executive. “The fact that anybody would be willing to participate in this program is a real testament to Geithner.”

Here’s how the key constituencies reacted to Geithner.

WALL STREET

Geithner’s plan got an early and important endorsement from The Financial Services Roundtable, a trade group for the nation’s largest financial institutions. The group said the plan will help fix a value on the damaged securities, give flexibility to potential buyers and provide enough government-backed financing to make the plan work.

“Combined with other on-going efforts, the plan will help strengthen the economy,” the Roundtable said in a statement immediately after Geithner’s announcement.

Of course, not everybody on Wall Street was thrilled with the proposal. Lynn Tilton is the CEO of Patriarch Partners, a $6 billion private equity fund that has done several deals to buy toxic assets off bank balance sheets, is skeptical that the idea will work. She argues that the plan doesn’t give the potential sellers of the toxic assets enough incentive to take part. They will be reluctant to sell if it looks like someone else will make a windfall from their misfortune, she believes.

‘This should have been set up so the banks can share in the upside,” Tilton said. “This is very enticing for the private sector buyers, and taxpayers’ concerns are quelled, but they’ve left out the third part, which is getting these guys to sell.”

CAPITOL HILL

On the Hill, meanwhile, the reaction was predictably split, with Republicans offering withering criticism, and Democrats largely holding firm in support.

Senate Majority Leader Harry Reid (D-Nev.) said in a statement that he backs the plan, though in less than fulsome terms. “Like any investment, this plan carries the potential for both risk and reward,” Reid said. “But above all, we must act – one risk we will not take is standing on the sidelines and doing nothing while a bad situation gets worse.”